What the US$1.8 Billion Stratasys and Desktop Metal Merger Means for Customers, Partners, and the Competition

Stratasys and Desktop Metal announced in May a definitive agreement to combine in a US$1.8 billion all-stock transaction that is expected to close 4Q 2023. Stratasys is a longstanding, leading provider of polymer Additive Manufacturing (AM) solutions and Desktop Metal is a storied metal binder jetting (MBJ) Unicorn that acquired its way into sand, ceramic, and dental Three-Dimensional (3D) printing solutions following a December 2020 Special Purpose Acquisition Company (SPAC) Initial Public Offering (IPO). Together, these companies, and this announcement represent the single biggest turning point for production AM in the current era due to the scale of the new business combination (expected US$1.1 billion in 2025 revenue), technologies represented, and execution potential. The result is that Stratasys looks to become the clear AM market leader for polymer and metal parts at any scale, from prototyping, molds, and tooling to mass production. Customers and partners will benefit most in the medium and long term, and from a competitive standpoint, a major industry transaction must happen.

The near- to medium-term customer impact is broader unfettered access to more AM solutions. All told, the two companies supply more than 30 different AM platforms and 450 materials to 27,000 industrial customers. The most promising and talked about production solutions among these are DLP on the polymer side and MBJ for metals. Stratasys has DLP from its acquisition of Origin in 2021 and Desktop Metal’s DLP business is from its acquisition of EnvisionTEC a month later. For MBJ, this comes from Desktop Metal, which acquired its main MBJ competitor and former market incumbent ExOne in 3Q 2021, and has several native offerings that span prototyping and machine shops (Studio System, Shop System) through mass production (P-50 Production System). These two technology families—DLP and MBJ—are, by far, the leading contenders for any volumes that credibly fall into the mass production category.

From the perspective of who you may want to work with, Stratasys’ organizational and go-to-market excellence hedges the risk larger prospects may have been unwilling to bear in working with a startup like Desktop Metal. Desktop Metal customers gain access to a first-class channel ecosystem and the backing of a company with a 34-year track record. It is also a bargain deal for the existing Stratasys customer base, given that the Stratasys merger with Desktop Metal implies a ~US$0.6 billion valuation for the entire Desktop Metal business, which, in addition to the organic Desktop Metal business, accounts for ~US$1.1 billion in target investments, such as EnvisionTEC (~US$0.6 billion) and ExOne (US$0.3 billion). Longer-term benefits include better accessibility/ease-of-use for a wide range of solutions, streamlined workflows driven by software, and a deeper, more seamless integration with other manufacturing production systems.

For channel and technology partners, there is a larger menu and ecosystem within which to operate. Right away, this means the ability to support DLP applications that span electrical connectors for vehicle wiring harnesses to dental applications in the US$30 billion crown and bridges market. Production metal and sand-casting solutions are available vis-à-vis Desktop Metal’s ExOne assets, in addition to turnkey, mid-volume MBJ options like the Shop System. At a high level, the portfolios of Stratasys and Desktop Metal are highly complementary with very little overlap from the perspective of which platforms/technologies are used to address which applications/use cases. Uniquely, both Stratasys and Desktop Metal cater to higher volume applications. The net effect for channel partners is the ability to serve more customers better and for technology partners, it becomes less of a choice of where to prioritize development.

Stratasys’ merger with Desktop Metal is critical for both companies and the industry. For polymers, the deal meaningfully expands Stratasys’ addressable market for production DLP beyond industrial (Origin) and into dental (EnvisionTEC), which represented 35% of Desktop Metal’s 2022 revenue. The next-most formidable competitor in the DLP space is 3D Systems and Carbon, which was active in the media early, but has taken a backseat with few public customer examples showing momentum of late.

Beyond DLP and, more generally, the most significant competitors to Stratasys are 3D Systems and HP. Markforged is a distant notable mention due to acquiring a small MBJ company, Digital Metal, for US$32 million in 2022, but the main actors are 3D Systems and HP. Both companies provide polymer AM solutions, albeit for lower-volume applications, and are regarded as world-class players. The Stratasys polymer portfolio was leading compared to 3D Systems and HP before and without Desktop Metal due to a series of systems launches and investments (i.e., acquiring Covestro’s AM materials business in April); however, metal was not in the picture.

The metal AM market is more nuanced. The 3D Systems metal offering is regarded as well understood in its ability to reliably produce fully dense parts (no sintering after print), making it a good fit for aerospace applications; however, production is slow and costly, and there are a handful of other credible providers in the same space (e.g., EOS, Trumpf). Most importantly, the technology (Laser Powder Bed Fusion (LPBF)) simply cannot scale to mass production.

HP is most comparable to Desktop Metal from an MJP perspective, except HP currently only has a single MBJ offering (the Metal Jet S100) that is best oriented toward low- and mid-volume applications. By contrast, Desktop Metal has a range of MBJ offerings and broad material support that together allow it to address more opportunities, including the higher-growth end-use part market. Stratasys’ bet on MBJ is that Desktop Metal’s production assets—namely the flagship P-50 Production System—will live up to its promise, but even if it gets part of the way, the new Stratasys still has better footing than its peers. Desktop Metal was always destined for a final exit, it was just a matter of timing and price. If it didn’t go to Stratasys, it would be another suitor. This means that the merger with Stratasys can be viewed as offense, defense, or both, but there is no question that something had to happen.